Redemption Penalty - Are They Legal???

jamesd

Lizzy, the information would be confidential - it would tell their competitors more about how to better compete with them in providing fixed rates. I can understand them not wanting to go into details about that.

Your situation seems a bit different, since self cert mortgages have a higher risk - too many people end up lying about their income, among other things.

The usual way to handle higher risk in the US and now increasingly in the UK is to use different interest rates for each level of risk. Then non-prime lenders use early repayment charges to discourage switching as credit scores improve, giving them enough time to make a profit for accepting the higher risk from the higher interest rates. The extra charging is done so that the cost for all those at about the same risk level pay more and those who do default are subsidised by those who don't.

I expect that they could explain this cost over a group of borrowers but it does take time for the loan book to mature - all borrowers to pay their mortgage or leave - before the final cost of lending to the group is known. Once that has happened they could show that their initial projections were reasonably accurate.

They could try to charge those who do default more than those who don't but pretty much by definition those who are sub-prime borrowers are less likely to have the money to pay those charges after defaulting - they wouldn't have defaulted otherwise. So it makes more sense to charge up front or in higher interest rates over time with that early payment charge to discourage switching. Different situation from the fixed rates, where the borrowers can be expected to be able to pay, so leaving it to only those who do switch can work. Charging up front for sub-prime mortgages isn't the most wonderful of ideas either, since the people who need them are less likely to be able to pay. Pretty much leaves higher interest rates and exit charges as the way to go. Or maybe lower loan to value limits as well, so repossessions are more likely to get back all of the money.

I'll be very surprised if there hasn't been an actuarial study of the borrower default rates that's sufficient to show that the charges are reasonable estimates. Whether a mortgage company pays up instead of presenting it is a different question. I doubt they will want to present their own figures in detail - too commercially sensitive because of what it would reveal about their lending practices. That is something I'm sure they all want to hide, since it helps other lenders to compete with them.

While you may win in this case, I don't see any choice left for the lenders but to raise rates or charge higher up-front fees for all borrowers if it becomes common. I don't really like that idea, since it hurts those who are most in need of decent rates and don't default.

Whether it seems fair to me in your personal situation is something I can't really say, though - I don't know enough about the late payments and what happened to cause them to make an early repayment charge.

jamminjamaica

my mortgage has a penalty of £900 and i only have one month left on my current mortgage and they told me it would cost £1200 (ish) to redeem my mortgage.

Leon_W

If your payments are late Lizzy then they can default you whenever they like.

You undoubtedly knew what you were doing when you signed up to the deal, but are now bleating and whining to anyone that will listen about how hard done by you are.

For the majority of mortgage customers that can read, there are plenty of mortgages available that do not have Early Repayment Charges so why didn't you get one of these ? Oh I forgot, it's more expensive isn't it ?

It would be in the interests of everyone if you lose your case. I hope you do lose it.

Lizzy

Yes it seems that they can default when they like. That is exactly what they said. Obviously you don't seem to think 2 months is a bit harsh.

Leon W all your posts (to anyone who wants to try) have been shall we say harsh to say the least. You and others have frightened people into PM ing me for advice because they are too scared to post.
And that is why I was asked to post here. Something I said or done has hit a nerve somewhere. I am sorry you do not agree, and of course I could lose and have been prepared for that all along. I don't think there is any need to be nasty about it.

James d. I did not mean you in any of this. Your posts have always been polite and informative, thank you.

I will not respond to any more posts on this thread as it is easy to see it has become a slanging match that I do not want to enter into.

Lizzy

thepcsaysno

Hi all, we took a morgage 2 years ago, because I had no accounts nor a deposit we ended up with a non high street lender. We are paying £725 to service a £130000 interest only morgage. This is crippling us so we went to a high street bank that can now help us. We went back to our morgage company & they want 3% of the outstanding balance to let use go (almost £4000).We have paid almost £20000 in interest, This cannot be fair they back you into a corner with high interest rates then completly shaft you when you have a means of getting out..
Please help

housebuyer_abc

Lizzy wrote:

No the mortgage was 2 payments late and they defaulted me. I believe that credit agreements are usually 8 payments before default. Thats why it was swiftly removed no doubt with legal action pending on them.

My mortgage was for self cert not bad credit so I suppose thats not mainstream. Over the last 17 years of course we have had late payments. I don't disagree with that at all thats life. So there we go all charges back, default removed and now ERC pending. Cool.

You say this like it should be expected and that its okay. It isn't. You agree to pay on a set day set amount, pretty simple really.

How would you like it if your employer didn't pay you on the correct day, oh yeah you'd shout and scream like mad about how unfair and inconvenient it was like any other sane person.

In a later post you say don't you think two defaults is a bit harsh, I refer you to my comment above, if you hadn't been paid for two months wouldn't you be thinking of breaking your employment contract, same thing you just assume its okay because they've got bigger pockets. If everyone adopted this attitude the mortgage rates would rocket and everyone would suffer.

I'm not however having a go at people who get into genuine difficulty just those who don't work with their lender to solve the problem.

tamadus

I dont intend to respond to every comment posted on this thread. But I will say now that no charges, whether they are from a bank or Mortgage company are ILLEGAL they are UNLAWFUL which is a big difference. Illegal is a criminal matter Unlawful is a civil matter.

Several months ago everyone was sceptical about reclaiming charges from banks and credit card companies, now you all doing it thanks to the pioneering efforts of other people. I am sure your all very happy when that cheque drops onto the doormat.

Mortgages are NO DIFFERENT. The companies are charging early redemption PENALTIES , not just on fixed rate products but also any product with a reduced interest rate. Just because something is written into the standard terms and conditions (which the consumer is not able to negotiate) doesn't mean that those terms and conditions are lawful. When you agreed the terms and conditions for that bank account you just settled a claim for you agreed to their charges but it didnt stop you reclaiming them.

The breach of contract occurs when you settle the mortgage early just as when a you exceed an overdraft limit.

It is pointless calculating a charge spread over 1000 mortgages and then levying a fixed fee across every customer, for the charge to be lawful and sustainable it has to be determined on an individual basis. For example If I repay a mortgage 6 weeks early, they have to prove that their losses are exactly what they charge me for early redemption, its not good enough for them to say well the average for 1000 people is £5000 so thats what we charge you.

In addition they cannot (and case law supports this) expect me to indemnify them for any commercial risk they may face. A fixed rate or reduced rate is a commercial business decision designed purely to attract my business.

Lizzy, among others is taking a risk to pioneer something most of you will be happy to gain from in the future so why knock her down ?

From reading this thread I suspect that most of the negative posts against Lizzy and others following this path are from brokers who see their nice fat fees (which they get for doing nothing an individual can't do themselves)being reduced. I never use a broker, prefering to locate and secure my own mortgage deals. To date every one has been to my advantage.

People ARE reclaiming early redemption penalties. The mortgage companies are falling back on the same arguments we have heard 1000 times over bank charges. They are failing to prove that the charge is a true pre-estimate of losses and they are settling in full rather than go into a court room and give standard disclosure. Please do not tell me that that the true calculation is a trade secret, it isn't, it's a matter between the mortgage company and me. I have a legal right to know how they calculate that figure.

You can slate me as much as you like, I doubt I will post on this thread again. For anyone who does want to challenge an early redemption penalty go and join CAG (the link has already been posted) where challenges are being made successfully and you will be helped along the way instead of slated and knocked back. NOBODY needs to be told that they deserve to lose when they are helping to open the gates for others. Too many people have been badly affected by all of these unlawful charges.

Just my humble opinion, you can take it or leave it depending on which side of the fence your sitting, I know which side I am on and I know which side those who slate this post are on as well. The banks et al have had it their way for far too long, the consumer is now fighting back and I back the consumer every inch of the way. I have seen too many people lose their homes over unlawful charges to have any sympathy for the banks losing their disgustingly exhorbitant and unlawful profits.

milletme

I am new to this thread and am amazed at the negative and ill informed comments about early redemption charges.

uk bondraider - I very much doubt they are illegal as otherwise no one would be paying them.
The penalty charges the banks charge on going overdrawn, bouncing cheques/dd etc are unlawful but the banks still charge them and people are still paying them.

Robert Stirling refers to them being in the T&C'S and therefore are lawful.
Sorry but just because something is put in the T&C's does not make it lawful.

James's comment that ERC for fixed rate is accurate does not make sense.
I was charged £14k for redeeming my mortgage 3 years into a 7 year fixed rate deal. If I had redeemed just 1 day before the 7 year term was up I would still have been charged the same £14k.

Teddyr - Redemption fees are not illegal. Once you sign the contract you are legally binding to that contract. Its not like you can't read, is it? Its only legal if you were mislead.
Of course you were mislead. Banks are not allowed to charge you a penalty they can only cover their costs and you are not liable for whatever financial decisions they make.

Is this thread populated by bank employees/mortgage brokers.

Just to put you in the picture my mortgage was with a high street bank it was not in default nor was I ever 1 day late with my mortgage payments.

I will leave it at that at the moment but anyone out there who has paid an early redemption penalty on their mortgage I would say join the consumeractiongroup web site and read around the site. You have nothing to loose.

Tootsie_Roll

Great !! Now we can expect higher mortgage payments/less appealing fixed rate deals thanks to the few who choose not to honour an agreement they have signed up to.

In my view it's very simple - if you don't want to pay redemption penalties don't sign up for the deal in the first place and balls it up for the rest of us as is now being seen with fees being introduced on bank accounts.

AndrewSmith

At the end of the day.

The redemption penalties are clearly indicated on the mortgage offer. You are happy to take the incentive rate so therefore be happy to accept the penalties should you want to 'jump ship' within the incentive period.

Lower rates are available purely because there are redemption penalties attached to discourage the borrower from leaving before the period ends. The product and rate are priced on the basis of the borrower remaining for the term of the incentive.

If you don't like the penalty then don't take the rate. Simple.

Everyone is always being pushed to go for the cheapeest rate. well Im afraid that you get nothing for nothing in this world. Like it or lump it. Ye you can have a cheaper rate but it will come at the cost of haviing to stay with that lender/product for the incentive term. I think that's a fair deal.

Its not a question of the board being populated by brokers etc. We are allowed our say as consumers just like everyone else. What the brokers and bank employees can offer is factual information based on what the likely outcome will be without patronising everyone by trying to sucker them into some fruitless campaign to reclaim redemption penalties that they agreed to in the first place, all in the name of awareness of the cause.

Whether there is 1 day or 100 days left on the incentive rate, if the penalty is applicable then it must be paid. The borrower will have signed their agreement to the penalties and the rate at the time of completion. If the borrowers are stupid enough not to read thoroughly a legally binding contract such as a mortgage offer before signing their agreement to it's terms an conditions then they have only themselves to blame.